Auto Insurance Break for Rail Commuters

New Jersey Skylands Insurance Companies has unveiled a promotion that highlights what it says is a first-of-a-kind discount for New Jersey drivers who regularly commute to work via mass transit — a rate discount of up to 10 percent.

It is great to see that insurance companies are doing what federal, state and local policymakers should be doing: Creating financial incentives for people to leave their cars at home and use mass transit. Oh, and it would also seem to make a lot of sense from, you know, an insurance perspective.

I imagine the non-urban driving public (not to mention the AAA) would be up in arms at such a suggestion. Makes perfect sense though.

g

Maybe my health insurance premiums should be less, too, since I walk to work.

Sean

What’s really beautiful about this product is what Nick implies in comment 3.

The insurance company must have identified a profit opportunity in rail commuters: even with a 10% discount, rail commuters cost less to insure because they require fewer payouts.

The insurance company is trying to attract lower cost insured to the risk pool.

Insurance, though, is a zero-sum game. There are a fixed number of insured. If commuters take the bait and sign up with company A, companies B through Z have to offer the same promotion or see the lower cost insured flee to company A.

The companies have to offset either the lost lower risk insureds or the revenue lost through the promotion.

Stick with me, I’m getting to the good stuff.

The only way to offset either the cost of the promotion or the lost lower cost insured is to raise rates on people who commute by car. And that, my friends, raises the costs of commuting by car. Which should be incentive for some to change their commuting practices to non-car. Which increases the number of people who are eligible for the promotion. Which decreases the number of car-commuting people who get to bear the cost of the promotion. Which raises the cost of commuting by car. Ad infinitum.

There’s probably a regulatory endgame to this. Politically, it’s probably not possible to have car commuters bear all of the costs of commuting, especially if there are indigent without much commuting choice.

But, a guy can dream.

Mitch

There’s also something called a “location-efficient” mortage (http://en.wikipedia.org/wiki/Location_Efficient_Mortgage). In some cities, some lenders will give better lending terms (higher debt-to-income ratio, sometimes lower downpayments) on properties that have access to good mass transit.

The rationale is that people who are less dependent (or not at all dependent) on automobiles have more income to spend on housing.

Steveo – great article. Mileage-based auto insurance would be a terrific way to reduce VMT. A friend of mine has advocated pay-at-the-pump auto insurance as a way to implement that.

Kurt

Don’t insuance companies already charge higher premiums if you use the vehicle to commute? I distinctly recall being asked the primary use for my vehicle (pleasure, commute, business).

brent

Sean- Some interesting points. However,
“Politically, it’s probably not possible to have car commuters bear all of the costs of commuting”
This statement is actually backwards. The fact of the matter is that right now, it is EVERYONE who is bearing the cost of motorists through massive road subsidies (many, many times higher than railroads), oil wars, health/ medical costs, free parking, etc. It is the non-motorists who are missing out on histories most enormous social program. Conventional wisdom does not even acknowledge this fact.
“…especially if there are indigent without much commuting choice.”
Right now, it is almost everyone who doesn’t have much commuting choice.
i.e.- indigent: lacking food, clothing, and other necessities of life because of poverty; needy; poor; impoverished.
Only in America can a car be considered necessity!

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